Liontrust Global Dividend Fund

The Liontrust Global Dividend Fund returned -0.8% in October, behind the IA Global Equity Income sector average of 0.5% and behind the MSCI World Index which returned 2.3% (both comparator benchmarks).

Longer term performance remains strong, with the Fund having returned 122.7% since manager inception (31.08.17), well ahead of the IA Global Equity Income sector return of 66.2% and the MSCI World Index return of 110%.

October wrapped up with the third quarter earnings season in full swing. Companies were reporting against the backdrop of a looming US election which has overshadowed both media and markets and contributed to heightened volatility as we came to the end of the month.

More constructively, we saw continued evidence throughout the month of a coordinated global dovish shift in monetary policy following September's decisive 50 basis point rate cut by the US Federal Reserve. While markets in China faced pressure early in the month after no new fiscal stimulus was announced at the NDRC’s press conference, subsequent Politburo and cabinet statements suggest potential for incremental stimulus ahead, with some firepower possibly being reserved for November given US election-related trade risks. This broader policy pivot should support economic growth and yield curve steepening, benefiting cyclical sectors once election uncertainty subsides. Meanwhile, in the UK we heard our first budget from the new Labour government – while the taxation and spending plans drew mixed reactions, the move reduced uncertainty to the UK market. This ties into a broader theme we're seeing across major economies, where near-term volatility related to key policy events gives way to increased clarity and improved decision-making once we are able to move past these milestones.

We continued to see evidence of AI acceleration both through company earnings updates and ongoing advances in model capabilities and product releases. Notably in October this included Anthropic's release of its updated Claude AI 3.5 Sonnet model featuring 'computer use' capabilities – a step towards agential AI, enabling direct computer interaction and task completion through enhanced image understanding and logical reasoning. On the consumer front, Meta announced the expansion of its AI tools to 22 additional countries with multiple new languages. However, like Apple's AI offerings, these services remain unavailable in the EU due to regulatory uncertainty. This is a concerning development that highlights how excessive regulation risks creating an 'AI winter' in Europe as consumers and businesses miss out on transformative technologies.

As ever we remain focused on what our companies are telling us, looking to the ongoing earnings season for tangible evidence of how our innovative global leaders are executing. While the US election adds uncertainty, we remain confident that companies are well positioned regardless of the outcome: innovative global leaders on the right side of the new innovation cycle, driving dividend and earnings growth in the years ahead

Early in the month, ASML (not held) sparked concerns around semiconductor and AI demand after posting lacklustre orders and reducing guidance. However, this proved largely idiosyncratic, reflecting a normalisation of Chinese lithography investment following two years of accelerated purchases ahead of sanctions. Other semiconductor equipment inventory remains balanced and poised for growth into 2025, as evidenced by updates from TSMC, the month's top contributor to Fund performance. The world's leading foundry rallied 10% after reporting 50% year-on-year earnings growth, demonstrating the ongoing strength in structural demand for AI infrastructure. With competitors Intel and Samsung facing challenges, TSMC is emerging stronger in this technology cycle, well-positioned to capture value across compute upgrades in data centres, smartphones and PCs. AI-related revenues are expected to grow over 100% in 2025, driven by Nvidia's Blackwell ramp, while the company's geographic expansion continues apace – notably with its first US fabrication plant now entering production. Looking ahead, we see value capture in semiconductors shifting away from lithography towards materials engineering and advanced packaging, as AI drives the first real increase in semiconductor size in decades.

This shift was reflected in Fund holding Lam Research, a leader in semiconductor manufacturing equipment, whose shares rose 5% after strong results driven by growing demand for high-bandwidth memory (HBM) in accelerated computing. HBM is expected to grow from 6-7% to 20-25% of DRAM wafer capacity, representing a substantial opportunity for Lam, whose expanding service business and growing customer base supports its impressive 15% annual dividend growth and 27% return on invested capital. Further reinforcing the strength of underlying AI infrastructure demand, Amphenol, a global leader in high-tech interconnects, delivered exceptional results with 26% year-over-year revenue growth and 17% earnings growth. The company is seeing significant content growth as GPU clusters expand, with IT datacom revenues surging 60% year-over-year, demonstrating robust demand across the AI ecosystem. Beyond AI infrastructure, Amphenol is gaining traction in next-generation automotive drivetrains and expanding its industrial footprint through acquisition – strong positioning that should support continued earnings growth and build on its impressive 16% five-year dividend CAGR.

Elsewhere, our leading financial sector businesses delivered strong updates, with both Morgan Stanley and Blackstone rallying over 6% after earnings. Morgan Stanley beat expectations across the board, with wealth management achieving record revenues and clear operating leverage while investment banking benefited from improving capital markets activity. Geographic diversification proved valuable, with significant growth in EMEA (their best investment banking quarter in a decade) and Asia complementing US strength, while early signs of deposit growth and lending demand point to stabilising net interest income. This operational strength supported 36% earnings growth and its impressive five-year dividend CAGR of over 20%. Meanwhile, Blackstone offered a very confident outlook as lower capital costs look set to reignite demand for private assets. The company has been positioning for this cycle turn by deploying $123 billion over the past year, notably bolstering its position as the world's largest datacentre provider through the acquisition of AirTrunk. With an additional $100 billion datacentre pipeline and exposure to structural growth trends in private credit, Blackstone appears well positioned for both capital appreciation and continued dividend growth ahead, having delivered a 12.5% dividend CAGR over the past five years.

On the other hand, key detractors to Fund performance included global consumer leaders LVMH and L'Oreal, both impacted by deteriorating Chinese consumer sentiment. LVMH reported a rare disappointing update with organic sales falling unexpectedly in its key fashion and leather goods unit – the first such decline since 2020 – as Chinese sales switched from mid-single-digit growth last quarter to a mid-single-digit decline. Similarly, L'Oreal saw beauty sales in China deteriorate more than expected, with the broader Chinese beauty market declining from slight growth in Q1 to high-single-digit declines in Q3. Despite this cyclical weakness, with Chinese consumer confidence at levels last seen during Covid, both companies remain well positioned for an eventual recovery. LVMH, as the global luxury leader, continues to focus on product innovation as a cost-effective growth driver, while L'Oreal is gaining market share and doubling down on innovation with a 'beauty stimulus plan' ready for 2025. Given this dislocation between macro headwinds and strong competitive positions, we took the opportunity to add to our positions during the month.

We continue to maintain our valuation discipline, trimming or selling companies as they start to reach our target prices and buying or topping up businesses – as we did with LVMH and L'Oreal - when we see attractive upside opportunities. Following the positive backdrop for financials, we established a meaningful position in Moody's, the global leader in risk assessment and credit ratings. Like Blackstone, Moody's is well positioned for the rate cutting cycle, while its steady compounding profile is evidenced by an impressive five-year dividend CAGR of over 11%. Meanwhile, we exited our position in Microsoft, despite its strong franchise in cloud and enterprise software. While the company reported solid results, meeting lowered expectations, the market's disappointment with Azure growth and planned acceleration in capital expenditure reinforced our concerns about earnings trajectory. After a period of above-trend growth, Microsoft is expected to deliver 10% earnings growth in 2025 as it builds out compute infrastructure for AI, making consensus expectations look expensive at current valuations. Though Microsoft remains the bellwether for enterprise AI, and could become attractive again at lower levels, we see better opportunities elsewhere as earnings growth broadens beyond the Magnificent 7.

November has started at pace, with several key – the US presidential election (November 5th), the US Federal Reserve meeting (November 7th), and likely further Chinese stimulus following a conclave of the Standing Committee of the National People’s Congress – all falling in the first week of the month. The resolution of these key overhangs should provide welcome clarity for markets, allowing fundamentals to come more fully to the fore, and we believe the Fund remains well positioned regardless of outcomes. The ongoing earnings season continues to demonstrate broadening opportunities, with growth expanding well beyond Nvidia and the traditional technology leaders. While major technology companies are signalling increased capital expenditure for 2025, we're seeing new winners emerge, both in enabling technologies like networking and in companies leveraging AI to strengthen their industry-leading positions.

Against this backdrop, we maintain our valuation discipline – trimming into strength where appropriate while remaining alert to opportunities in innovative global leaders positioned on the right side of disruption. With our companies plugged into attractive structural growth trends and entering a new innovation cycle, we believe the combination of earnings growth and disciplined valuation will continue to drive returns and dividend growth through market volatility ahead.

Discrete years' performance (%) to previous quarter-end:

*Source: FE Analytics, as at 30.09.24, C accumulation share class, total return, net of fees and income reinvested. Fund inception date is 31.12.01; the current fund managers’ inception date is 31.07.17.